What’s new: The global private equity market witnessed its steepest decline in 2023 since the global financial crisis as rapidly rising interest rates led to sharp fall in dealmaking, exits and fundraising, consulting firm Bain & Company Inc. said in a recent report.
Global buyout investment value dropped 37% from 2022 to $438 billion, the lowest level since 2016. The number of deals plunged 20% to around 2,500, according to the report.
The value of investment exits plummeted 44% to $345 billion, with the deal count declining 24% to 1,067. Fundraising also dropped across private capital, with the total funds raised sliding 20% year-on-year to $1.2 trillion, marking the lowest level since 2018.
Private equity investment slowed across the globe in 2023, with transaction value declining 31% in North America, 38% in Europe and 32% in Asia-Pacific region, according to Bain.
Bain expects dealmaking to revive this year despite lingering economic challenges. The industry is sitting on an unprecedented $3.9 trillion in unspent capital, the largest share of it in buyout funds, it said.
The context: The global private equity market peaked in 2021 with total transaction value exceeding $1.1 trillion. But the upbeat trend reversed since late 2022, followed by a sharp decline in 2023. The 2023 buyout deal value marked 60% drop from the 2021 level.
Bain attributed the decline to soaring interest rates and shaken investor confidence, which broadly affected markets across all major regions. From March 2022 to July 2023, the Federal Reserve increased rates by 525 basis points, marking the most significant monetary tightening in decades.
All transaction types felt the impact, but deals dependent on bank financing were hit hardest. In 2023, interest rates for large syndicated loans soared to a 10-year high— 10.9% in the U.S. and 8.9% in Europe — resulting in a sharp decrease in loan issuances. Consequently, the number of large transactions over $5 billion nearly halved, with the average deal size dropping from 2021’s peak of $1 billion to $788 million, according to Bain.
Contact reporter Han Wei (weihan@caixin.com)
